One question, eight experts, part six: William Dachs

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To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

The ability of a national PPP program to apply lessons learned from one project to the next is dependent on factors such as the documentation of case studies and the use of a central repository of information in a PPP unit at the national level, where such lessons can be distilled and applied to the next project in that jurisdiction.

There are plenty of good examples of such programs that learn from and apply lessons. But how are individual PPP projects able to absorb mistakes and still meet the original objectives of value for money for the users of the services and the taxpayers who may ultimately bear the risk of the project failing?

It is impossible to predict the range of possible risks and to allocate these with precision over 20 to 25 years in a complex and changing environment. As such, the key to achieving long-term value from a PPP does not only lie in the quality of the feasibility and procurement phases, but also in how the balance of risk and rewards is established and applied in the PPP contract so as to be able to survive significant changes over a long period of time.

The lessons that have been learned over the last 15 years are that the flexibility to amend contracts is very important but so is the need to maintain public sector oversight over that change process. This is necessary so that the public benefit, or value for money, is maintained and that the risk allocation between the parties remains consistent with that approved as part of the original PPP contract. It’s also important for governments to permit PPP contracts to enter into liquidation without stepping into the contract and rescuing the shareholders.

The “let the market work” approach applies market risk in a strong but fair manner. The alternative is to renegotiate and rescue the shareholders — and in so doing, creating a strong moral hazard that will ultimately prevent any lessons from being learned and applied.

Editor's note: this article originally appeared in the World Bank Group's Handshake journal.